UK and Ireland threaten veto over VAT plan

FRITS Bolkestein, the internal market commissioner, yesterday (16 July) unveiled controversial plans which would allow member states to apply a reduced Value Added Tax rate on a wider range of goods and services.

The proposal has caused controversy in the UK and Ireland, which will lose their right to impose a zero VAT rate on children’s clothes and shoes. France, meanwhile, will be able to keep its heavily reduced rate on restaurant and catering services.

The plan updates the list of sectors eligible for a reduced rate of VAT – known in jargon as ‘annex h’ – to include, for example, social and cultural products, home help, housing repairs and gas and electricity.

Since all tax matters can only be decided by unanimity, the UK, supported by Ireland and Luxembourg, has said it will use its veto to quash the plans.

But Bolkestein insisted that the Commission would not be bullied.

“It is not the job of the Commission to follow member states’ predispositions,” he said. “It is our job to uphold [an article] which obliges the Commission to remove market distortion related to VAT. If [the proposal] is shipwrecked in Council, so be it.”

Bolkestein denied that the plans would penalize parents in the UK, with opponents arguing that the Commission would “tax motherhood and apple pie”.